Why Iraq, Amazon and the Fed made news this week

Iraqi security forces fire artillery during clashes with Sunni militant group Islamic State of Iraq and Syria in Jurf al-Sakhar.

Life in the financial markets is never boring. Major world events provide direction for commodities and stocks, but there are usually other things going on that can put opposite pressure on prices.

And it’s very important for investors to refrain from overreacting to the daily list of alarming headlines, according to Howard Gold, who on Thursday pointed out that everything’s (mostly) fine.

Here’s a roundup of the 10 most important things that happened over the past week. We’re focusing on market events, but will also include non-market subjects of great interest to MarketWatch readers.

Iraq

The rapidly unfolding events in Iraq underscore what looks to be an ironic and tragic conclusion to the Iraq War that kept U.S. troops fighting in that country for eight years, with nearly 32,000 casualties and over 4,000 deaths, at a cost of well over $1 trillion, according to a March 2011 estimate from the Congressional Research Service. (The last of the U.S. troops left in December 2011.)

This week the Sunni militant group that calls itself the Islamic State of Iraq and Syria, or ISIS, attacked Iraq’s largest oil refinery and surrounded it, trapping government workers inside. The rebels have quickly taken over large portions of the country, and with no U.S. presence in Iraq, the government’s most important ally has become Iran.

President Obama on Thursday said he would send up to 300 military advisers to assist Iraq’s government.

The president also said he would send Secretary of State John Kerry to the Middle East in order to shore up support for an Iraqi government that would bridge the divide between Sunni and Shiite factions.

The problem with that sort of diplomatic nonsense is that it can have no effect when events on the ground are moving so quickly. The Sunni insurgency against the Shiite-dominated government was long prepared, and neither the rebels nor Iran seem very likely to be in the mood for talking.

In addition to the dismay over so much U.S. blood spilled in Iraq and the obscene economic price that now appears to be a total waste, the uncertainty is likely to keep pushing oil prices higher. Brent crude oilCLQ24, -50.79%
for August delivery on the New York Mercantile Exchange rose 1% for the week to $106.83 a barrel. That’s the highest price in nine months.

Federal Reserve

The Federal Open Market Committee on Wednesday announced the Federal Reserve would cut its monthly purchases of long-term U.S. Treasury securities by $5 billion to $20 billion and its purchases of long-term agency mortgage-backed securities by $5 billion to $15 billion. Those moves were in keeping with the central bank’s plan to complete the wind-down of its “QE3” bond purchases by the end of 2015.

The Fed began its massive balance-sheet expansion in September 2012, buying bonds at a pace of $85 billion a month until it announced a so-called tapering in December. Anticipation of the December announcement pushed the market yield on 10-year Treasury notes up 118 basis points during 2013 to 3.04% at the end of the year. This year, the 10-year yield has reversed course, pulling back to 2.63%.

As we are seeing this year, the pending end of QE3 hasn’t caused long-term rates to jump, and many investors expect rates to remain extraordinarily low for many years. For those investors, real estate investment trusts, or REITs, are still attractive, as we discussed a few weeks back when listing mortgage REITS paying dividends of up to 19%.

Gold

The price of goldUS:GCQ4
for August delivery on the New York Mercantile Exchange rose 3% for the week to $1,315.10 an ounce, reflecting uncertainty in Iraq and the likelihood that interest rates will remain low for an extended period.

The phone has several new features, including "dynamic perspective” technology to improve screen imaging, and Firefly, which is designed to identify objects observed by the user in order to make it easy to buy these items through Amazon.

The new phone comes with 12 months of free Amazon Prime service, as well as unlimited Amazon Cloud service for a limited time for customers who sign up.

The Fire phone doesn’t seem like a game-changer among the smartphone competition, and it is always difficult to get consumers to switch devices, especially when limited to a single carrier, AT&T Wireless
T, -1.22%.

But Amazon knows its customers, and the company has shown through the Kindle that it is a serious hardware competitor, ready to take losses for a long time to build market share.

What this means for the stock is another matter. Amazon’s shares are down 19% this year, and investors are looking for the company to begin showing significant growth in earnings after so many years of sacrificing profit to assemble a leading brand. The company was recently included among 12 bargain-bin stocks to buy low and sell high.

That sent short-sellers scrambling to limit their losses by buying shares to cover their positions. BlackBerry’s stock rose 10% on Thursday. Then on Friday the shares jumped another 8% to close at $9.81, for a tidy one-week gain of 24%.

Industry watchers are waiting for the company to confirm the location of its first “gigafactory” for batteries. If Tesla is able to follow through with its plan to build many such factories, battery prices would be expected to decline, supporting not only the electric-car market, but also solar-power generation in homes.

American Apparel founder is shown the door

The board of directors at American Apparel Inc.US:APP
on Wednesday announced the firing of high-profile founder and CEO Dov Charney “for cause,” because of multiple investigations into alleged misconduct. The company’s stock ended the week with a 10% gain, closing Friday at 69 cents.

The company has shown a profit for just one quarter in 10, and the stock has dropped 44% this year, losing 79% over the past five years. So the company has been in trouble for years.

Retirement

Investing with the goal of building a retirement nest egg is a very popular topic at MarketWatch, but there are many other important subjects of interest to retirees and people saving for retirement. That pretty much covers everyone.

Do you think you know everything about Social Security. You don’t. And the decisions you and your spouse make about when to begin receiving Social Security payments depend on many factors, including both of your earnings histories, ages and plans to continue working.

There are many other aspects you should be aware of, including non-retirement Social Security benefits, how divorce can effect benefits and how to minimize taxes on Social Security income, all of which is discussed by Kenn Tacchino in eight Social Security basics you need to know.

Another very popular article at MarketWatch this week was Elizabeth O’Brien’s brain games that could pay off in retirement, which includes plenty of information on exercises and other individual and social activities that can stave off dementia.

World Cup

The first round of the World Cup has featured so many exciting, well-fought games, and this weekend there will be several matches that will be critical in deciding which teams proceed to the 16-team knockout round that begins June 28.

Fans can expect a desperate effort by Iran against Argentina when those teams play at noon New York time on Saturday, since Iran came to a 0-0 draw in its first match against Nigeria on Monday. Ghana will play powerhouse Germany at 4 p.m. Saturday after losing to the United States in a bruising match Monday.

Sunday will feature a match between the U.S. and Portugal, which could well end up with the U.S. team advancing to the second round.

Philip
van Doorn

Philip van Doorn covers various investment and industry topics. He has previously worked as a senior analyst at TheStreet.com. He also has experience in community banking and as a credit analyst at the Federal Home Loan Bank of New York.

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